Waco Equipment Co. v. B.C. Hale Const. Co., Inc.

• Decision Date: 20 December 1989
• Docket Number: No. 18852,18852
• Court: West Virginia Supreme Court
• Parties: WACO EQUIPMENT COMPANY v. B.C. HALE CONSTRUCTION COMPANY, INC., a/k/a B.C. Hale Construction Co., et al.

Page 848

387 S.E.2d 848

182 W.Va. 381

WACO EQUIPMENT COMPANY v. B.C. HALE CONSTRUCTION COMPANY, INC., a/k/a B.C. Hale

Construction Co., et al.

No. 18852.

Supreme Court of Appeals of

West Virginia.

Dec. 20, 1989.

Syllabus by the Court

1. "It is the general rule that a plaintiff can recover on a suggestion only when the garnishee is liable to the defendant [debtor]." Syl. pt. 1, in part, Emmons-Hawkins Hardware Company v. Sizemore, 106 W.Va. 259, 145 S.E. 438 (1928).

2. " 'An appellant must carry the burden of showing error in the judgment of which he complains. This Court will not reverse the judgment of a trial court unless error affirmatively appears from the record. Error will not be presumed, all presumptions being in favor of the correctness of the judgment.' Syllabus point 5, Morgan v. Price, 151 W.Va. 158, 150 S.E.2d 897 (1966)." Syl. pt. 1, M.W. Kellogg Co. v. Concrete Accessories Corp., 157 W.Va. 763, 204 S.E.2d 61 (1974).

3. "A contingent liability, ex contractu, is not subject to an order of attachment and garnishment." Syl. pt. 4, M.W. Kellogg Co. v. Concrete Accessories Corp., 157 W.Va. 763, 204 S.E.2d 61 (1974).

James Allan Colburn, Baer, Robinson & Colburn, Huntington, for Waco Equipment Co.

James R. Watson, Steptoe and Johnson, Charleston, for B.C. Hale Const. Co., Inc. a/k/a B.C. Hale Const. Co. et al.

PER CURIAM:

This is an appeal by Waco Equipment Company (Waco) from the March 22, 1988 order of the Circuit Court of Mercer County. We have before us the petition for appeal, the briefs of the parties, and the record, as designated by the parties. ¹ This case concerns a consolidated action to determine which of several creditors of a construction subcontractor are entitled to the retainage of a construction subcontract being held by the general contractor.

The parties in this action are: appellees, American Health Enterprises, the owner of a facility to be constructed; Turner Construction Company, the general contractor; Federal Insurance Company, surety on a performance and payment bond obtained by Turner, the general contractor; B.C. Hale Construction Company, the subcontractor of Turner who, prior to entering into the subcontract, owed money to the appellant Waco for equipment Hale purchased that is wholly unrelated to the construction project; Pounding Mill Quarry Corporation, and Compton Construction Company, perfected mechanic's lienholders who were not fully paid by Hale, the subcontractor, for stone and concrete they delivered to the construction site pursuant to the requirements of the subcontract; ² and appellant, Waco Equipment Company, an old judgment creditor of Hale, the subcontractor, who filed a writ of suggestion on the retainage of the Turner-Hale subcontract.

After hearing evidence on the consolidated action, the trial court held that the two materialmen of the subcontractor, Hale, who had perfected mechanic's liens, Pounding Mill and Compton, were entitled to the retainage of a construction subcontract, being held by Turner, the general contractor, to release their liens on the owner's real property. The court also held that appellant, Waco, the old judgment creditor of Hale, was not entitled to a suggestion lien on the retainage because Hale, the subcontractor, had no right to the retainage which under the subcontract was specifically designated for the purpose of releasing liens created by Hale, the subcontractor's failure to pay laborers and materialmen. The appellant Waco, the creditor, contends that the trial court erroneously concluded that Waco was not entitled to a suggestion lien on the retainage. We affirm.

Hale, the subcontractor, has been a debtor of Waco since 1983, when Hale failed to pay for roughly $44,000 worth of equipment. Since 1983 Waco had judgments in the Circuit Court of Cabell County against Hale for the amount owed, plus interest. For reasons not apparent in the record, Waco was unable to execute on the judgments.

In 1986 Hale obtained a roughly $450,000 subcontract from Turner, the general contractor. Waco learned of the subcontract on November 5, 1986. Waco obtained another judgment against the subcontractor, and its president, John F. Hale, in the Circuit Court of Mercer County and commenced garnishment proceedings against Turner, the general contractor, for the retainage Turner held under the subcontract. ³

On November 16, 1986, Hale, the subcontractor, left the job, without fully paying (among others) the two materialmen, Pounding Mill Quarry Corporation and Compton Construction Company. Hale had a combined debt to the two materialmen for roughly $36,000, plus interest. The two materialmen perfected mechanic's liens on the facility under construction, owned by American Health Enterprises. The perfected liens were effective the first week of April, 1986, the period when each of the materialmen first delivered the supplies. See note 2, supra. ⁴

Under W.Va.Code, 38-5-10 [1923], a judgment creditor may commence garnishment proceedings by filing a writ of suggestion against a third party (stakeholder) when the judgment creditor alleges that:

[S]ome person is indebted or liable to the judgment debtor or has in his possession or under his control personal property belonging to the judgment debtor, which debt or liability could be enforced, when due, or which property could be recovered, when it became returnable, by the judgment debtor in a law court,....

Waco alleged that the amount in the retainage clause being held by Turner, the general contractor, under its subcontract with Hale was a debt owed to Hale, and therefore subject to garnishment through a suggestion lien pursuant to Code, 38-5-10.

The circuit court issued a summons to Turner, the general contractor requiring Turner to answer the suggestion pursuant to Code, 38-5-10 [1931]. ⁵ Turner, the general contractor, answered that although it retained $39,000 under the subcontract, these funds were specifically earmarked under the subcontract for the release of unpaid mechanic's liens associated with the subcontract that were created by Hale, the subcontractor's failure to fully pay labor and materialmen. Since such debts existed and such liens were filed against the owner's property, under the terms of the subcontract, Hale, the subcontractor, forfeited any right to the retainage; therefore, Turner contended, it did not owe Hale.

The court ordered a full accounting of the subcontract, placed the balance, $39,000, in receivership, consolidated the two materialmen's actions, totaling roughly $36,000, plus interest, with the suggestion action for $44,000, plus interest, and heard evidence from all the parties. W.Va.Code, 38-5-15 and W.Va.Code, 38-5-18 [1923].

The critical evidence supplied to the court was the subcontract. Under the subcontract, Turner, the general contractor, did not require Hale, the subcontractor, to obtain a performance and payment bond. Instead, it was a progress payment contract that contained a retainage clause. Rather than paying Hale the lump sum ($450,000) upon completion of the work, Turner made monthly payments to Hale, the subcontractor, upon proof of completed work and supplied materials over the course of the previous month.

From the monthly amount paid for each progress payment, Turner, the general contractor, deducted 10% and retained it.

The parties agreed that the 10% retainage would be paid to Hale, the subcontractor, forty days after the subcontractor completed the job,

provided, first, however, ... (2) the Subcontractor shall have furnished evidence satisfactory to Turner that there are no claims, obligations or liens outstanding or unsatisfied for labor, services, materials, ... furnished or incurred for or in connection with the Work and (3) If any claim or lien is made or filed with or against Turner, the Owner, the Project or the premises by any person claiming that the Subcontractor or any subcontractor or other person under it has failed to make payment for any labor, services, materials, equipment ... or incurred for or in connection with the Work or if at any time there shall be evidence of such nonpayment or of any claim or lien for which, if established, Turner or the Owner might become liable and which is chargeable to the Subcontractor.... Turner shall have the right to retain from any payment then due or thereafter to become due an amount which it seems sufficient to (1) satisfy, discharge and/or defend against any such claim or lien or any action which may be brought or judgment which may be recovered thereon.

The purpose of the retainage clause was to protect Turner, the general contractor, from liability for mechanic's liens filed against the owner's property by debtors of Turner's subcontractors. Under the terms of the general construction contract between Turner and the owner, American Health Enterprises, the owner had limited the liability of the property for the release of mechanic's liens to the general construction contract price, as provided in W.Va.Code, 38-2-22 [1923]. Therefore, if such liens were filed against the owner's property that were not in excess of the general construction contract price, then Turner, the general contractor, and its surety would be required to pay the debts in order to release the liens on the property. ⁶

Hale, the subcontractor, left the job on November 16, 1986, with numerous creditors associated with the subcontract, as indicated in the final accounting.

The trial judge ruled that the roughly $39,000 ⁷ in retainage under the subcontract would be paid to the two materialmen to release their liens against the project, according to the terms of the subcontract. ⁸

In conjunction with this holding the trial judge also held that Waco, the judgment creditor, had no right to a suggestion lien on the retainage in the subcontract. The trial judge reasoned that under W.Va.Code, 38-5-10, Waco is entitled to a lien on the retainage only if Turner owed the retainage to Hale....